DBW 2014: Amazon, Subscription and the Book Business

by Calvin Reid
|

Jan 16, 2014

In a morning session entirely devoted to Amazon.com, Brad Stone, author of the bestselling The Everything Store: Jeff Bezos and the Age of Amazon, looked back over the retailer’s long history of relentless growth (and remorseless tactics) before looking ahead to its next round of competitive targets. He was joined by management consultant Joe Esposito, who outlined Amazon’s growing focus on academic publishing and an ongoing effort to capture book sales by librarians and displace their relationships with book distributors and wholesalers.

Although the online retailer seemed to be the shadow topic behind most of the panels at DBW 2014, yesterday morning Amazon was front and center with presentations from Stone and Esposito—individually and in tandem—on the retailer's past and present business pursuits. Although most DBW attendees are familiar with the story, Stone took them on a trip through the recent past outlining Bezo’s aggressive pursuit of market share and Amazon’s expansions beyond books into streaming movies, toys, electronics and now, even fashion, filmmaking and TV shows through its Amazon Studio unit. It’s a story told quite well in Stone’s book: Bezo’s focus on customer satisfaction (fast delivery, great prices), razor-thin algorithm-driven profit margins and an ever-increasing enviable ability to exploit inefficiencies that Amazon seems able to identify before anyone else. It’s also the story of Bezo’s remorseless tactics and business culture—Stone noted Amazon’s notorious Gazelle Project that applied pressure on small publishers to get better discounts.

Stone said Amazon will “continue to be ruthless and self-absorbed” as it continues to disrupt new areas of the book industry and other media areas. Amazon has opened a new 44,000 square foot photo studio in Brooklyn to produce photographs for its apparel/fasion business. The retailer has a fast growing grocery business and both Stone and Esposito pointed to Amazon plans to launch its own TV set box. But these new ventures are unlikely to provide much solace to the book industry or distract Amazon from the book trade, both presenters said, because Amazon will continue its relentless pursuit of market share in the book industry. “If e-book sales flatten, they will look for new ways to boost them,” Stone said, “packaging books together,”—he cited Amazon’s Matchbook Project which bundles e-books with print—and there’s even the possibility Amazon will experiment with physical spaces, setting up its own showrooms to display books and other kinds of merchandise.

In other words, look for more of Amazon’s characteristic efforts to enter businesses and “build moats”—low prices and customer-stroking service built on tiny margins—around them that will continually feed its growth and discourage other companies from entering the same business category. Esposito (with a grant from Carnegie Mellon) has organized a university press research project to look at academic press book marketing.

Esposito outlined efforts by Amazon to squeeze ever-tougher terms from cash-strapped nonprofit university presses as well as its efforts to displace distributors like B&T and Ingram with cheaper prices and faster service. He even outlined a “supply chain paradox,” a case study of how Amazon orders titles from third-party distributors, gets them to ship books to libraries overnight packaged in an Amazon box—although paradoxically the same distributor would take longer to ship the title if the sale came to them directly. Esposito said Amazon has about a 10% share of the library market and is taking a growing share of overseas sales of academic titles, disrupting the roles of conventional distributors. “Amazon is thinking 3-5 years ahead and positioning themselves accordingly,” he said.

Joined by DBW organizers Mike Shatzkin and Michael Cader and later, GigaOm’s Laura Hazard Owen, in separate sessions, Stone and Esposito offered more observations about Amazon. Asked if there any limits to Amazon’s potential for growth in the book business, Stone said “I see [Amazon’s growth] accelerating before it slows down, depending on the the decline of the Nook. We need to see how that plays out.” He said he checked the price of Donna Tartt’s The Goldfinch, recently and Amazon was offering it for $7 and B&N for $14.99. He pointed to Amazon Prime—“the center of the Amazon universe”—and Amazon efforts to seek dominance in all forms of media. “Amazon is willing to pay enormous sums for catalogs of movies,” Stone said, “my kids only know Amazon and NetFlix, that’s their TV. Bezos is making a long-term bet on the media business and they have the deep pockets to do it.”

The sheer size of the new Penguin Random House merger as well as the possibility of its own direct retailing efforts was cited as a possible obstacle to Amazon as well as the possibility that other big players—tech companies like Microsoft or Apple or big discounters like Target and Wal-Mart—may look to target the retailer, “just to give Amazon trouble,” Esposito said. “Amazon usually gets a head start on everyone,” he continued, “they aren’t used to unseating incumbents. Microsoft is different and usually enters new businesses late.” Stone said Amazon will generate $75 billion in sales this year, but asked what might happens when the company gets even bigger, “where will they get workers when it’s a $200 billion company? They’re always looking to automate, that’s why Bezo’s is talking about drones.”

This year’s Digital Book World 2014 ended with the news that the show will move to the New York Hilton in 2015 and with its traditional show-ending round-table of industry figures. This time, Shatzkin asked the group—Sourcebooks’s Dominique Raccah, Rodale’s Mary Ann Naples, the eponymous John Ingram and Cader—to single out the most interesting startups they’ve encountered. Among the companies cited were cloud e-book publisher Aerbook; and special sales and social media apps BookShout and Campus Quad were cited by Ingram, who said, “some will fail but that’s OK.” Raccah cited her own personalized kids book service Put Me In the Story (as did Naples), along with e-book club venture Librify, Booktrack (putting synchronized soundtracks on e-books) and Wattpad, the online writer and reading community that Sourcebooks is partnering with.

The show ended with a quick survey of the group’s reaction to the subscription e-book model—something of an unofficial theme topic at this year’s DBW—and the reviews were mixed. Shatzkin said “agents are dubious and resistant.” And Raccah was dubious as well, “it probably can be made to work, but it looks like a library to me and competes with OverDrive,” adding ominously “it’s not good for business.” Naples said subscription would be good for certain “verticals, yes it could work and if consumers want it, we’ll give it to them.” Finally, John Ingram said “we’re watching, but trading dollars for dimes is a tough proposition.”

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